Section 8 Project-Based Rental Assistance:

HUD's Processes for Evaluating and Using Unexpended Balances Are Ineffective

RCED-98-202: Published: Jul 22, 1998. Publicly Released: Jul 22, 1998.

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Pursuant to a legislative requirement, GAO reviewed the Department of Housing and Urban Development's (HUD) systems for budgeting and accounting for Section 8 rental assistance funds, focusing on whether the systems ensure that unexpended Section 8 project-based funds do not reach unreasonable levels and that obligations are spent in a timely manner.

GAO noted that: (1) as of September 30, 1997, HUD's Section 8 project-based rental assistance program had about $59.1 billion in unexpended balances in three major categories: (a) undisbursed obligations--funds obligated to Section 8 contracts but not yet disbursed; (b) unobligated but reserved funds--balances reserved for specific rental assistance contracts but not yet obligated; and (c) unobligated and unreserved funds--funds that are neither obligated nor reserved for any specific contracts; (2) most of the unexpended balances--$55.4 billion--represent undisbursed obligations associated with approximately 31,000 rental assistance contracts; (3) in addition, at the end of fiscal year (FY) 1997, HUD had about $3 billion in unobligated funds that were reserved for but not yet obligated to specific contracts and about $.7 billion in unobligated and unreserved funds that were carried over for use in 1998; (4) while most of the unexpended balances are needed for HUD to fulfill its commitments to the Section 8 contracts for which the funds have been obligated or reserved, GAO found at least $517 million in unexpended balances that are no longer needed for such purposes and thus could be recaptured by HUD and used to help fund other Section 8 contracts; (5) HUD's procedures for identifying and deobligating funds that are no longer needed to meet its Section 8 contractual obligations are not effective; (6) specifically, the procedures do not ensure that all Section 8 project-based balances are evaluated each year and that any excess balances are identified and deobligated in a timely manner; (7) while HUD's program offices are responsible for reviewing unexpended balances each year to determine whether they are still needed or can be deobligated, GAO found that some offices did not perform annual reviews in 1997 and that some funds identified as being available for deobligation in earlier reviews were not deobligated; (8) in addition, GAO found errors in the process HUD used to identify and take into account unexpended balances when formulating its budget request for FY 1999; (9) as a result, HUD's FY 1999 request for $1.3 billion in amendment funding to cover shortfalls in existing Section 8 contracts was significantly overstated; and (10) more recent analyses that correct most of these errors and update the economic assumptions used indicate that HUD already has sufficient funding available to meet its amendment needs for FY 1999.

Status Legend:

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  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Recommendations for Executive Action

    Recommendation: To improve the Department's oversight of Section 8 project-based balances, the Secretary of Housing and Urban Development should require the Chief Financial Officer to revise the procedures used in the Department's annual review of unexpended balances to ensure that reviews are completed and that balances that are not needed are identified and deobligated in a timely manner. This process should include a requirement that those officials responsible for reviewing the balances actually certify the continued need for the unexpended balances associated with Section 8 project-based contracts and that the Office of the Chief Financial Officer provide sufficient oversight to determine the adequacy of the reviews conducted.

    Agency Affected: Department of Housing and Urban Development

    Status: Closed - Implemented

    Comments: In response to the recommendation, HUD examined the processes that it used for reviewing unliquidated balances Department-wide and determined that the entire process was in need of improvement. In September 1998, HUD issued a memorandum establishing a revised process for HUD review of unliquidated obligations. Under the revised process, each HUD Assistant Secretary was asked to designate a person to coordinate the review of the unliquidated obligations under their control and to certify whether the obligations were still valid and should be kept open or whether they were no longer valid and could be deobligated and the funds recaptured. The written certification requirement is intended to provide an additional level of assurance that the reviews have been performed as required. HUD's Section 8 Financial Management Center is also involved in overseeing the processes relating to the identification of Section 8 contracts that should be reviewed for potential deobligation and processing recaptures. The Center identifies Section 8 contracts that are to be reviewed for potential deobligation, provides lists of such contracts to HUD's Office of Multifamily Housing for review and concurrence, and processes the recapture of funds from contracts that the Office of Multifamily Housing agrees should be deobligated.

    Recommendation: The Secretary of Housing and Urban Development should require the Chief Financial Officer and the Office of Housing to ensure that HUD's future funding requests for the Section 8 project-based program fully take into account the availability of unexpended balances that may be used to offset funding needs. To accomplish this goal, the Department would need to establish controls to ensure that the data used in any supporting analyses are complete, accurate, and current; that available funding is fully reflected; and that sufficient checks are performed to ensure that the analyses produced are reliable.

    Agency Affected: Department of Housing and Urban Development

    Status: Closed - Implemented

    Comments: The Department's funding requests for the Section 8 project-based program are taking into account the availability of unexpended balances that may be used to offset funding needs. HUD's 2000 budget request included an offset of $2.2 billion from unexpended Section 8 balances. The Department had an independent CPA firm review the supporting analyses for the balances associated with the fiscal year 2000 budget. HUD is using the same methodology for the fiscal year 2001 budget request currently under development.

    Recommendation: The Department should improve the methodology used to estimate future expenditure rates for Section 8 project-based contracts.

    Agency Affected: Department of Housing and Urban Development

    Status: Closed - Implemented

    Comments: In response to GAO's recommendation, the Department improved the methodology used to estimate future expenditure rates for Section 8 project-based contracts. According to HUD's Budget Office, the new methodology was used in HUD's FY2001 Budget Estimate.

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